Futures Point To A Stronger Open
INTEREST RATES
02/23 OVERNIGHT CHANGE to 04:23 AM:BONDS-1 The
Treasury market slumped last Friday off the idea that a stronger US Dollar would
rob the Treasury market of foreign bank buying. However, it would also seem like
the slight rise in the US CPI reading undermined the longs, as the report showed
a +.5% increase. We might add that the CPI figures have yet to show the
slightest increase off food prices and that is certainly in the cards in the
months ahead.
STOCK INDICES
02/23 OVRNIGHT CHG to 04:23 AM:S&P+260, DOW19,
NIKKEI +148, FTSE+21 The stock market seemed to lose its bullish tilt last week,
as prices slid lower on conflicting information. Certainly the regularly
scheduled economic news was disconcerting but we are not sure if the market will
actually transition into a down trend because of recent developments. There is
no doubt that the market violated some critical technical support levels last
week, but the market does look to open the new week well off the lows posted
last Friday.
DOW
Critical support in the March Dow comes in this week at even numbered 10,600 but
a slide to 10,560 can’t be ruled out. The biggest problem for the bull camp
might be garnering a development that effectively turns around the mostly
bearish near term psychology. Therefore, in order to turn the short term trend
back up, the March Dow needs to climb above 10,670.
S&P
The big range down and recovery back to mid range on Friday, leaves the market
in a classical bottoming formation but with the range last Friday only 1400
points, the action isn’t indicative of a major reversal low. In the near term we
give a slight edge to the bear camp and a trade below 1139 could be a bad
technical sign. Aggressive traders might buy the March S&P at 1142 and risk the
position to tight stop at 1137.80.
FOREIGN EXCHANGE
US DOLLAR
The Dollar certainly drove impressively off its
February low but when one considers the economic numbers and the new threat of
(mostly minimal) inflation concerns, the US economy is not in a powerful
condition. In other words, we would buy into a major Dollar bottom easier, if
the US numbers were beginning to percolate but as it stands it would seem that
inflation is potentially set to rise before the US Fed sees its economy strong
enough to weather a pre-emptive hike. While many might suggest that inflation is
hardly an issue (they are probably right) inflation is probably one of the few
elements capable of turning the trend around in the Dollar. In the mean time, we
think that the Dollar is temporarily over valued and mostly caught within the
last two months wide trading range. Near term down side targeting in the Dollar
comes in at 86.92. To call a major bottom, there has to be fundamental
justification and so far we don’t see evidence of that.
EURO
Certainly the Euro suffered a serious technical blow
last week, but at this point we don’t see the justification for a continued
decline in the currency. For the euro to resume the downside thrust seen last
week, Euro zone numbers will have to show a pattern of weakening, or the US
numbers will have to begin coming in stronger. In other words, recent
fundamental patterns suggest that the recent lows in the Euro will hold.
YEN
Considering the massive slide in the yen, we have to
think that some short put plays are in order. With the Dollar showing signs of
losing its strength from last week, we suspect that the yen will attempt to
climb back toward 93.00. A massive rise in the Japanese trade surplus should
foster ideas of a recovery in the Yen, as the BOJ might see the export rise and
be less concerned about the negative effects of a higher Yen! Exports in January
rose by 11.3%, while imports rose an anemic +0.8%.
^next^
SWISS
Like the Euro, the Swiss appears to have found at
least a temporary support zone above the lows posted Friday. However, we are not
sure if the Swiss has much in the way of bounce capacity. In fact, we see heavy
overhead resistance up around 79.70.
BRITISH POUND
The critical pivot point of 185 looks to support the
Pound at the beginning of the week, especially if the Dollar continues to give
back the gains managed last week. Traders can probably get long the March Pound
and look to risk the position to 184.50.
CANADIAN DOLLAR
The recovery off the lows last Friday probably
provides traders with a chance to get short the Canadian at a slightly higher
level. Unless the Canadian can show some early positive action, in the wake of
the Dollar slide this morning, we have to think that the trend is down in the
Canadian and even if the trend isn’t down in the Canadian we think that the
Canadian has the potential to return to the November lows.
METALS
OVERNIGHT
GLD+1.90, SLV-2.30, PLAT-0.20 London A.M.
Gold Fix $399.85 -$8.40 LME COPPER STOCKS 298,400 -4,925 tons COMEX Gold stocks
3.47 ml -414 oz Comex Silver stocks 123.9 ml Unchanged
GOLD
While the Dollar has driven sharply off the February
low it would appear from a short term perspective that it has temporarily run
out of upside capacity. While the Dollar rise off the lows certainly injured the
gold market, it could really take the threat of an uptrend in the Dollar to
completely undermine gold and end the uptrend. In other words, the March Dollar
might have to breakout and drive above 88.00 to push another wave of gold longs
from position.
SILVER
An article out of Sydney this morning suggests that
silver is catching a ride off the coattails of copper and that might be true. It
is partially impressive that silver was riding in the wake of the gold until
gold faltered and then silver seemed to latch onto copper. As mentioned in the
Sydney article, the silver market seems to lack the fundamentals of copper but
apparently the silver had enough interest to mount a run from under $6.00 to a
high of $6.88 in February alone and that speaks of some driving bullish force.
PLATINUM
After mounting a significant probe down overnight
the platinum market seems to have recoiled away from the lows. Like the silver
market, we are not sure where the fundamental case is for a continuation of the
uptrend. As is usually the case, the weekly COT report showed 4,900 contract
spec and fund long, which is just under the 5,000 contract overbought moniker.
COPPER
The Chinese copper market was slightly higher
overnight leading the US early action to post a sharp gain. The presence of
another deficit prediction of 850,000 tons from Societe Generale, rekindles the
shortage talk and launches copper toward those 1994-1995 highs. However, it
should be noted that the Falconbridge strike at a Nickel facility was apparently
solved but that doesn’t mean that copper disputes at other facilities will be
easily resolved.
CRUDE COMPLEX
While the market thinks that the expiration
Friday fueled the temporary washout, there were certainly reasons for the market
to slide there were also reasons for the market to recover. The COT report
certainly confirms that the market was overbought and certainly the increase in
US crude stocks was bearish enough to prompt profit taking, but in the end
overall conditions remain bullish. While the unleaded market fell a little
further than we expected on Friday, the break probably gives would be longs a
chance to get long at a more reasonable level.
NATURAL GAS
With the small spec long position still holding at
25,468 contracts as of February 17th, it would not seem like the market has
reached a technical bottom. From a fundamental perspective, the market seems to
have underlying support, but in the near term we are not sure there is a reason
to be long. Maybe the small specs are hoping for a late season cold burst, but
from the numbers in the latest inventory report, it would not seem like the
tightness story has much of a chance of capturing the markets focus.